Facebook Entering Chapter of Navigating Privacy Impact

Shares of Facebook are down 7% in the after-market based on Mar-19 revenue guidance slightly below consensus along with the company cautioning that privacy changes may have an impact on monetization this year. Facebook’s dominance in reach and engagement is impressive (MUAs and DAUs up 8% y/y), but making money from that base will become modestly more challenging in the next two years. Our other takeaways:

Expense guidance for this year was in line with previous expectations, suggesting the cost of managing the platform is unchanged.

Facebook user growth continues to be solid at 8% y/y, more or less in line with the last few years.

It should be no surprise that Facebook expects privacy and policy changes from Apple and Google to have an impact on targeting this year. Investors don’t like hearing CFO’s comments: “the majority of the impact lies in front of us.” Our guess is that these changes will modestly weigh on FB’s multiple in 2020 and revenue growth in 2021.

Zuckerberg talks about the significance of AR and VR during his prepared remarks. It’s clear Facebook wants to be a key player there. The two emerging leaders in AR appear to be Facebook and Apple. We continue to believe that AR is underappreciated by the investment community.

Zuckerberg remains optimistic around Libra and the company’s payments opportunity at large (additional non-Libra payments options inside WhatsApp and Instagram). Likely will take 2+ years to make headway on Libra. More immediate benefit from upcoming non-Libra payment tools. Unclear what form those will take.

Facebook dating topic arose on the call. That segment is a non-event for Facebook’s overall business, but we do applaud the company for creating products that have the potential to bring people together without the risk of being divisive.

Add gaming to the list of Facebook’s opportunities. While it’s a crowded space, their 2.5B MAUs translates to Facebook having a seat at the table of companies that can be impactful in gaming. Also, we look for further integration of their AR/VR assets into social gaming.